UK Pensions - Supreme Court decision thwarts switch from RPI to CPI

The Supreme Court has handed down its judgment in a case (Barnardo’s v Buckinghamshire and others) which looks at whether the wording of the relevant scheme rules allows a switch from RPI to CPI as the index by reference to which pension increases are calculated. The effect of the decision is that the employer will not be able to switch from RPI to CPI, but the case is likely to be of interest to other schemes and employers considering this change.
What did the scheme rules say?
The scheme rules provided for pensions in payment to be increased by reference to the Retail Prices Index, which was defined as “the General Index of Retail Prices published by the Department of Employment or any replacement adopted by the Trustees without prejudicing Approval”. The question was whether this meant that:
  • RPI had to be replaced by the official body responsible for its publication before the trustees could adopt the replacement; or
  • the trustees could choose another index as a replacement for RPI, whether or not RPI continued to be published.
What did the Court decide?
Upholding the earlier decisions of the High Court and the Court of Appeal in this case, the Supreme Court has decided that the first interpretation of the scheme rules is correct. RPI has to be replaced by the official body responsible for its publication before the trustees can adopt the replacement.

This case adds to a growing list of Court decisions in this contentious area. It will be of interest to schemes and employers considering whether their scheme rules permit a switch from RPI to CPI. However, as the outcome turned on the construction of the relevant scheme’s rules, it will only be directly relevant to schemes which happen to have the same form of wording in their scheme rules.

If you would like us to consider the scope for change under your scheme rules, please speak to your usual Linklaters contact.